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lina2011 [118]
3 years ago
15

ou currently own $100,000 worth of Wal-Mart stock. Suppose that Wal-Mart has an expected return of 14% and a volatility of 23%.

The market portfolio has an expected return of 12% and a volatility of 16%. The risk-free rate is 5%. Required: Assuming the CAPM assumptions hold, what alternative investment has the highest possi
Business
1 answer:
AURORKA [14]3 years ago
3 0

Answer:

return = 20.81%

Explanation:

Capital Asset Pricing Model:

The capital asset pricing model (CAPM) is used to calculate the required rate of return for any risky asset.

Formula:

return = risk free + ( beta * ( market return-risk free ) )

where

beta is the standard deviation of the capital market line

Formula for standard deviation:

The standard deviation of the capital market line = x * standard deviation of market return    

As Wal-Mart has an expected return of 14% and a volatility of 23%. The market portfolio has an expected return of 12% and a volatility of 16%.

Therefore by putting the values in the above formula, we get

0.23 = x * 0.16

x = 1.4375  

As the risk-free rate is 5% and the market portfolio has an expected return of 12%

x = 5% + ( 1.4375 * ( 12% - 5% ) )

x = 20.81%

so return = 20.81%

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The answer is 6.72%

Explanation:

Calculating the imputed rate from a discount bond as follows:

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( 1 + i )^3 = FV / PV,   here FV= 1000 and PV= 727.25

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( 1 +i )^3 = 1000 / 727.25  

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5 0
3 years ago
here are seven firms in the automobile industry. The market shares of the firms are 34​ percent, 21​ percent, 17​ percent, 9​ pe
Lemur [1.5K]

Answer:

The answer is  "Option 4".

Explanation:

The Herfindahl-Hirschman Index formula:

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here sn is the firm n's share of the market proportion represented the society in general number instead of a decimal

Index Herfindahl-Hirschman:

= (34)^2 + (21)^2 + (17)^2 + 92 + 82 + 62 + 52\\\\= 1156 + 441 + 289 + 81 + 64 + 36 + 25\\\\= 2092

Index Herfindahl-Hirschman(Result of the merger, firms with profit margins of 6% and 5% provided market shares of respectively).

= (34)^2 + (21)^2 + (17)^2 + 92 + 82 + 112\\\\= 1156 + 441 + 289 + 81 + 64 + 36 + 121\\\\= 2188

The market with just an HHI of less than 1,500 is called a competitive industry, one on an HHI of 1,500 to 2,500 is called a moderately competitive store, and one on an HHI of 2,500 or higher is considered a highly potent store by us Justice department.

All businesses operate in a moderately crowded market, as well as a merger such as this reduces competition (increases chances of monopoly). Also as result, the Justice Dept may examine its merger but will most likely deny this because the Herfindahl-Hirschman index has risen.

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3 years ago
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Reverse innovation is the process by which goods developed as low-cost prototypes to satisfy the needs of developing countries, such as battery-powered medical tools in countries with poor infrastructure, are repackaged as low-cost novel goods for Western purchasers.

The approach of innovating in emerging (or developing) markets and then distributing/marketing these inventions in mature ones is known as reverse innovation. Many businesses are creating items in rising markets such as China and India and then distributing them abroad.

To know more about  reverse innovation follow the link:

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8 0
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One of the major challenges facing companies today is to keep the customers they already have since there are fewer customers to
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Answer: d. the costs of attracting new customers are rising.

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